The No Tax on Tips Act was approved by the United States Senate in a unanimous 100–0 vote — a rare show of bipartisan agreement in today’s polarized Congress. The bill was introduced in the Senate by Ted Cruz (R-Texas), with support from a group of both Republicans and Democrats including Jacky Rosen (D-Nevada) and Catherine Cortez Masto (D-Nevada). This legislation also reflects a key campaign promise made by Donald Trump in 2024. By exempting tips from federal income taxation, the bill targets workers — especially in service and hospitality sectors — whose income often depends heavily on customer gratuities and therefore can be unpredictable.
Under the new law, tips — whether cash, credit/debit card, or check gratuities — become deductible on federal tax filings.The bill establishes a “qualified tips” deduction: workers can deduct up to $25,000 per year of reported tip income. Additionally, the law restricts the benefit to employees in occupations that “traditionally and customarily” receive tips (as determined by a list to be published by the Treasury Department), and only tips that are reported to employers for withholding purposes qualify. The bill also places a limitation: individuals whose prior-year compensation exceeded a threshold (in 2025, $160,000) are not eligible for the deduction.
Proponents argue that this law offers immediate, meaningful economic relief to millions of service workers — waitstaff, bartenders, hairdressers, hotel staff, tipped workers — whose livelihoods often depend on gratuities rather than stable wages. Advocates say the prior tax system unfairly taxed tip income even though tips are voluntary and unpredictable, imposing an additional burden on workers already subject to income instability. Democrats and Republicans supported the bill — a reflection of how widespread the concern is across political and demographic lines.
However, the law diverges in some key respects from earlier versions and broader proposals. For example, the bill’s deduction cap at $25,000 per year means that workers receiving exceptionally large tips (e.g. luxury-service employees) will not enjoy unlimited tax-free tip income. In addition, self-employed individuals or contractors may be excluded — the Senate version’s language targets “employees” whose tips are reported for payroll withholding, not necessarily independent contractors. These guardrails were crucial in gaining Democratic support, aimed at preventing abuse by employers or high-earning individuals who might otherwise reclassify income to maximize deductions.
The bill also expands existing payroll-tax credits for employers, by broadening coverage to additional “tipped” professions beyond the traditional food/beverage sector — such as beauty services (barbering, hairstyling, nail care, spa and esthetics). Supporters argue this will level the playing field across industries and acknowledge that service workers in many fields rely on tips for substantial portions of their income.
As the bill now moves to the United States House of Representatives, the momentum appears strong. Senate backers have urged the House to pass the measure “as is” so it can become law quickly. If enacted, the No Tax on Tips Act would represent one of the most significant federal tax changes for service-industry employees in decades — with the potential to increase take-home pay for millions, reduce financial instability in tipped occupations, and adjust tax policy to reflect modern compensation practices.
